The Japanese Yen (JPY) strengthened against the US Dollar (USD) during Thursday’s Asian session, buoyed by increased safe-haven demand. Market sentiment was dampened after US Treasury Secretary Scott Bessent played down expectations for a quick resolution to the US-China trade dispute, which capped optimism and provided further support for the JPY. Additionally, hopes that Japan will secure a trade deal with the US and speculations about further interest rate hikes by the Bank of Japan (BoJ) added to the currency‘s appeal.
The JPY’s strength is amplified by contrasting expectations for future monetary policies between the BoJ and the US Federal Reserve (Fed). While the BoJ is expected to continue its tightening measures, the Fed is anticipated to adopt a more dovish stance, favoring the lower-yielding JPY and limiting the USD’s recovery from recent multi-year lows. This fundamental backdrop appears to favor JPY bulls, with traders now looking to the upcoming US economic data and trade developments for short-term triggers.
Safe-Haven Flows to JPY as US-China Trade Deal Optimism Fades
US President Donald Trump reiterated that the 145% tariffs on Chinese imports will eventually be reduced substantially. However, Bessent denied reports suggesting that the White House is considering unilaterally slashing tariffs on Chinese goods, signaling that the US may be waiting for China to make the first move. This tempered optimism for a swift de-escalation of the trade war, driving safe-haven flows toward the Japanese Yen.
Japan’s Finance Minister Katsunobu Kato expressed disappointment over the US tariffs, warning of the uncertainties they create in global financial markets. In response, Japan’s Economic Revitalization Minister Ryosei Akazawa is set to visit the US on April 30 for tariff negotiations. Additionally, BoJ Governor Kazuo Ueda indicated that the central bank may need to take policy action if US tariffs negatively impact Japan’s economy. Reports also suggest that the BoJ will downgrade its economic growth forecasts and highlight risks posed by Trump’s tariffs.
Despite these challenges, investors remain optimistic about the BoJ’s prospects for raising interest rates in 2025, driven by persistent inflation in Japan, which has remained at or above the 2% target for the past three years. This stands in stark contrast to expectations for aggressive rate cuts by the Fed, with traders pricing in a potential rate-cut cycle beginning in June and three cuts by the end of the year. This divergence in monetary policy expectations is weighing on the USD’s ability to capitalize on its recent recovery.
Geopolitical Tensions and Divergent Monetary Policies Favor JPY
Geopolitical risks also remain a factor, with President Trump criticizing Ukraine’s President Volodymyr Zelensky for rejecting US terms to end the war with Russia, further exacerbating tensions. This continued uncertainty supports the JPY as a safe-haven currency, especially in the context of the Fed’s dovish stance compared to the BoJ’s hawkish outlook.
Investors are now awaiting key US economic data, including weekly initial jobless claims, durable goods orders, and existing home sales figures, which could provide further direction for the USD/JPY pair.
Technical Outlook for USD/JPY
From a technical perspective, the USD/JPY pair found support near the 38.2% Fibonacci retracement level of the March-April decline. The overnight close above the 23.6% Fibonacci level at 143.00 marked a key trigger for USD/JPY bulls, while hourly oscillators show positive momentum, supporting the case for dip-buying near the 142.45-142.40 region. This suggests that downside risks are limited, with strong support at the 142.00 round figure. A break below this level could push the pair toward the mid-141.00s and potentially to the 141.10-141.00 zone, with further declines targeting the 140.50 intermediate support.
On the upside, a push above 143.00 could face resistance near the 143.55 level, which corresponds to the overnight swing high. Continued buying momentum could drive the USD/JPY pair toward the 144.00 round figure and the 144.35 confluence, where the 38.2% Fibonacci level and the 200-period Simple Moving Average (SMA) on the 4-hour chart intersect. A decisive break above this resistance zone could pave the way for a meaningful recovery in the near term.
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